BlackBox Flow Training Part 4

BlackBox Flow Training Part 4

 

BlackBox Flow Training (Part 4)

 

BEARISH CALLS

Bearish calls. This is a very important distinction between us and the competition when I said we show you the bid side activity. This is what I’m talking about. calls in and of themselves are not bearish, a call is when you think the price of the underlying is going to increase in value.  If you buy a call that’s a bullish position because you think the underlying position that’s tied to that call is going to go up in price. So, you would buy a call. That’s a bullish position.

There’s two ways a call position can be bearish.  If you open a composition that’s bullish because again, you think the underlying is going to go up in value?  So, when you see calls coming in on the bid, that is a bearish scenario. The calls themselves aren’t bearish it’s what’s happening with the calls. That’s bearish.  What’s happening when calls coming in on the bid, there are two situations there. Someone’s closing a previously opened position.

If you see a bunch of calls coming across the scanner, don’t assume, it is a bullish position and buy.  All you would be doing, if those calls are labeled “B” and “BB,” is buying what someone else is trying to dump.  So, definitely pay attention to the B and BB on call flow.  That is typically someone closing or writing.

 

BULLISH PUTS

The opposite is bullish puts and it’s the same scenario.  If someone’s in a put position and they’re closing it out, that is a bullish scenario, because if they thought the underlying was going to continue to drop in price, they wouldn’t close out those puts.  If you’re in a put position and you think the underlying is going to drop, you’re not going to close those puts, right?  You’re going to hold on to those and try to make more money as it drops. So, if you’re closing out that position it must mean you don’t think it’s going to drop further.

If they’re closing out of that position, that’s not a position we want to go into and open.  The probability is against us. There’s a reason they’re taking three hundred thousand dollars out of this contract.  We want to go and put five hundred, or a thousand, or two thousand dollars of our money into what someone else is taking 300,000 out of it. So again, thinking and probabilities.  If you see this come across your screen and you opened above put position, you’re fighting the big money.

The competition doesn’t show you this bid side activity because they think it’s confusing. If you see calls coming across your screen it should be bullish and you want to open a call position.  If you don’t see that it’s bid side activity and you’re going against the big money. So, the competition just doesn’t show you that in the first place.  Blackbox wants you to have the complete picture and I’ll show you again later on where this is important to understand.

 

DEFAULT FLOW SETTINGS

Let’s look at the default options settings, when you initially log in.  Blackbox is set up to show you the basic, directional options trading that the algos pick up.  By default, “At or Above Ask” will be checked, removing the trades transacted on the bid or below the bid.  This helps to eliminate some confusion for newer traders.

So, go up here to your filter button and uncheck ‘above ask only’ or ‘ at or above ask’.   When those are unchecked, you will see calls on the bid and puts on the bid.  By default, we don’t show you that because we want to make it easy for you. When you see calls, it’s bullish.  When you see puts its bearish.  By default, when you uncheck those two settings, you will see the opposite. So, you’ll see when people are flipping out of contracts.  If you want to see that side, go to your filter settings and make sure ‘above ask only’ and ‘at or above ask’ are not checked, and when you uncheck those you will see the bid side activity.

 

MASSIVE FLOW

Massive flow is something we like to see.  Look at the flow on the right.  You can see how it just keeps coming in, relentlessly.  This flow started out early and kept coming in all day.   This shows us that people want in!   The price is increasing, and the buyers are still stepping in anyway.  Price doesn’t matter, these traders want to build this position.   This is something we will typically follow.  The heavy repetition shows some conviction in this particular play.   This also has some of the checklist components that I will discuss later.  This is flow we like to see.

When you see it come in like this; back-to-back. Boom. Boom. Boom. Boom. Boom. Yellow, purple, ask, sweeps, when you see it come in like this, that’s just massive flow. Someone’s trying to build a large position here. They’re doing it a thousand contracts at a time.  200 at a time, 500 at a time, and maybe they’re doing it this way so that they don’t spook the market.  If I go in and try and place a 5000-contract trade, someone’s going to see that and go, oh crap!  Something’s going on.

But, when they break it up like this, this might be someone trying to build, and build, and build a large position but do it in such a way that it’s not tipping off the market that something’s going on. The problem for them, is that BlackBox picks up the individual trades and we can see that they’re building a position even if they’re trying to be sneaky about it.

Everything the scanner picks up is unusual in some way, whether it’s price volume consistency or not.  We’re ignoring most of that until we see this. This is the story we’re looking for, as it jumps out at you. It’s telling you MU 816 expiration $49 call. There’s something about that time frame and that price that someone’s building a very large position. This is the flow.

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